KUALA LUMPUR: ECS ICT Bhd, Malaysia’s leading ICT product distributor, has secured the rights to distribute the Apple iPhone in the country but analysts who track the stock see minimal impact on its earnings.

“This is a positive development for ECS, but it is not expected to have much impact on ECS. I do not think this will serve as a catalyst for a rerating of the share price,” an analyst told The Edge Financial Daily.

“I think the rights to distribute iPhones will help to boost sales of ECS as the company enters into the premium smartphone market. However, do take note that the market share for Apple [smartphones] has been declining locally,” said the analyst, adding that Apple’s smartphone market share locally was about 11% in 2015.

The analyst who tracks the counter pointed out that the premium pricing of iPhones is one of the reasons consumers opt for cheaper alternatives as the cost of living rises.

Malacca Securities Sdn Bhd analyst Kenneth Leong said the distribution rights will increase top-line growth, but the margins are still unknown. Therefore, the impact on the company’s earnings growth remains unknown.

ECS has seen its revenue rising since the financial year ended Dec 31, 2013 (FY13), but net margins for the same year were trending down. ECS posted a revenue of RM1.33 billion in FY13, followed by RM1.59 billion in FY14 and RM1.9 billion in FY15. Net margins for the same period fell from 2.03% in FY13 to 1.85% in FY14 and 1.71% in FY15. 

In a statement yesterday, ECS chief executive officer Soong Jan Hsung said adding the iPhone into the company’s smartphone portfolio effectively expands its range of smartphones to include premium brands, in addition to its already established affordable range, allowing the company to address consumers’ wide demand spectrum.

“We began distributing the Apple Watch earlier this year, and believe that with iPhone distribution, it would be synergistic and [would] contribute positively to the group’s performance going forward,” he said.

Soong said the iPhone would not only drive the group’s smartphone sales, but would also be complementary to its latest offerings of smartwatches, drones and virtual reality goggles for a completely digital lifestyle.

ECS said its wholly-owned subsidiary ECS Astar Sdn Bhd had been a distributor for Apple since 1999, beginning with the colourful range of iMacs.

ECS distributes a comprehensive range of ICT products comprising notebooks, personal computers, smartphones, smartwatches, tablets, printers, software, network and communication infrastructure, servers and enterprise.

In a report dated Aug 5, Inter-Pacific Research Sdn Bhd analyst Wong Ling Ling lowered the earnings forecast and target price for ECS after the company released its second-quarter results.

Wong noted that the post-goods and services tax (GST) effect is finally kicking in as consumer spending on electronic gadgets slows down.

“The drop in the group’s performance was generally due to softer market conditions that came with slower sales in the ICT distribution segment, mainly mobility products,” she said.

“We lower our target price to RM1.70 with a ‘neutral’ call. The fair value is based on a 10 times price-earnings ratio pegged to its estimated FY16 earnings per share of 17 sen. We lowered our forecast due to the slowdown in consumer and government spending,” she wrote.

“However, we still keep to our positive outlook for ECS as it looks towards introducing the latest in ICT trends in their product portfolio,” Wong added.

The report noted that ECS’ gross profit margin for ICT distribution fell to 16.4% in the second quarter ended June 30, 2016 (2QFY16), compared with 17.2% in 2QFY15. The ICT distribution segment is the main contributor to ECS’ overall revenue during the quarter.

Overall, ECS’ net profit declined 21.25% to RM6.3 million from RM8 million in 2QFY15. Revenue fell 4.44% to RM400.18 million from RM418.79 million, due to softer market conditions.

For the six month-period, ECS’ net profit fell 34.33% to RM11.42 million from RM17.39 million a year earlier, due to lower sales. Revenue was down 11.34% to RM834.9 million from RM941.65 million, which ECS attributed to the GST implementation.

Shares in ECS closed six sen or 4% higher at RM1.56 yesterday after touching an intraday high of RM1.60, bringing a market capitalisation of RM280.8 million.